When publishing the review of remuneration practices and frameworks at the covered institutions on 12 March 2013, I indicated that the Government had formed the view that with the remaining covered institutions still incurring losses, it was an inevitable conclusion that the cost base of the institutions needs to be reduced further. This is essential if they are to return to profitability, be in a position to support the economy and repay the State's investment through a return to private ownership.
On behalf of the Government, I directed the banks, including Permanent TSB, to achieve 6% to 10% savings on remuneration costs. I was not prescriptive in how this was to be achieved respecting their differing levels of State ownership and paths to profitability. Those outline plans have been received but it is not possible at this stage to reveal precise individual details bar what has been put into the public domain. I can confirm that all three institutions have put forward pension changes to varying degrees as part of their respective responses.
I am constrained as to what I can say presently due to commercial sensitivities and perhaps, more critically at this stage, industrial relations concerns as the normal protocols continue and need to be respected and observed by all parties. This is something I have advocated throughout this process. I am anxious, therefore, that all the participants in these discussions are given space and time to conduct these critical negotiations.
Accordingly, I encourage all sides to engage in these discussions proactively through the appropriate forums in view of the serious consequences for all concerned. In this context, the Government readily acknowledges the sacrifices made by bank employees to date at all levels and recognises that this has been achieved without major industrial unrest in what is a critically important sector.
In respect of the specific issue - the proposed wind up of the defined benefit pension schemes at Permanent TSB - I need to be explicit in stating that this proposal emerged from Permanent TSB management which is responsible for managing the bank's operations commercially in accordance with the relationship framework. The relationship frameworks with the banks recognise that the covered institutions remain separate economic units with independent powers of decision and that the boards and management teams retain responsibility and authority for determining their institutions' strategy and commercial policies and conducting their day-to-day operations.
As I have said in response to recent parliamentary questions, the pension arrangements for the staff of Permanent TSB are a matter for the management of that company and the trustees of the relevant pension schemes. I am informed by the bank that very substantial funding deficits exist in the various defined benefit schemes which it operates.
In response to this significant problem and as part of a review of the overall cost base of the business, Permanent TSB has recently communicated to staff its plans to discontinue employer contributions to all existing defined benefit pension schemes and to commence in their place contributions to a new defined contribution pension scheme. Ultimately, it is for the trustees of the defined benefit pension schemes to decide how the schemes will respond to this development, but it may result in the defined benefit schemes being wound up and the assets already accumulated being distributed among the members of the relevant schemes, in accordance with the requirements of the Pensions Act. I understand such matters have been the subject of discussions between the interested parties. I am also informed that both staff and management have agreed that, in the absence of any agreement to date, the matter should be referred to the Labour Court for an early hearing. In the light of this development, all sides should agree that space be given for these negotiations to take place in a constructive manner.
I am very aware of the serious funding challenge facing pension schemes. It is acknowledged that the fundamental problem is that pensions are significantly more expensive owing to increasing life expectancy and lower than expected investment returns which are reflected in the increased cost of annuities. The issue of how the assets of a pension scheme are distributed on the winding up of a pension scheme is under consideration by the Minister for Social Protection. It has been the subject of a detailed review, including engagement with representatives of stakeholders and external consultants. This is a complex and sensitive issue, one which requires careful consideration before any change is made to the current provision as set out in section 48 of the Pensions Act. I understand that in a wind-up of a pension scheme the additional voluntary contributions, AVCs, are given the highest priority, followed by the pensioners, while the deferred and active members are each given the same rights to the remaining assets. I cannot speculate on the level of assets that would be available to the deferred and active members in a wind-up of the Permanent TSB defined benefit schemes.
